THREE ESSAYS ON THE RELATIONSHIP BETWEEN WEALTH TRASNSFERS AND SUBSEQUENT WEALTH
Sybrowsky, Jacob P.
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Life-cycle theory provides a theoretical framework for maximizing utility following the receipt of a wealth transfer. Empirical evidence has shown that the source of a transfer may affect how the transfer is framed. Individuals and households are affected by individual time preference, which is the process by which individuals weigh the tradeoffs of consumption across time and dissipation refers to the method by which funds drawn down across time. Also, the subjective weight that an individual puts on possible outcomes may affect demand for risky assets. Individual attributes like propensity to trust and locus of control are established personality constructs related to choice under uncertainty. This dissertation adds to the current body of knowledge of wealth change and preferred portfolio composition. Using life-cycle theory and framing as potential frameworks, results indicate that framing better explains subsequent variation in wealth among respondents who recently received an inheritance. Results show that a smaller transfer may be viewed as found money to be spent on immediate consumption rather than incorporated into life-cycle spending. Testing the relationship between time preference and dissipation risk by examining subsequent change in wealth among households who experienced significant increases in wealth provides insight into the relationship between time preference and wealth accumulation. Results indicate a higher propensity to continue saving and increase wealth over time for those who have lower time preference. This may lead to over-saving, based on life-cycle theory. The study of individual attributes like trust and time preference may provide insight into preference for risky assets. Results show that those who are less trusting are less likely to select a portfolio with risky assets and are more likely to prefer government bonds. Those closest to the median level of locus of control are more likely to prefer a large portion of government bonds, compared to individuals with low levels of locus of control.